Edward Leigh said that the cycle of overpayment and clawback was an inevitable part of the way the credit scheme was devised, but that the Government had failed to anticipate that it would happen on such a large scale.

HMRC paid out around £15.8 billion in child and working tax credits to five million families in 2003-04 and a similar amount in the following year. But in each year, around £2.2 billion was overpaid to about 1.9 million families - more than double the amount expected when the system was set up.

In many cases, repayments were required because claimants' circumstances had changed, but in others errors were due to official error or fraud by claimants.

Because of the difficulties many of the country's poorest families faced in repaying money which had already been spent, HMRC has made provisions to write off debts worth around £1 billion.

"An element of overpayment to claimants was an inherent part of the design of the Tax Credits system," said Mr Leigh.

"What came out of the blue for the Government was that overpayment would routinely occur on such a gigantic scale - an estimated £2.2 billion for 2003-04 and probably again for 2004-05.

"This is a deplorable situation for the hundreds of thousands of vulnerable families who have to find money for repayments.

"HM Revenue and Customs is struggling to extricate itself from this morass, but about £1 billion of debt from the first two years of the scheme will probably never be recouped."

Shadow paymaster general Mark Francois described the system as "a mess" and said reforms were needed.

He said: "The all-party Public Accounts Committee has now joined the chorus of critics of Gordon Brown's tax credits system.

"The report confirms that one in three claimants are still being overpaid, due in part to computer errors which are not the fault of the claimants themselves.

"The Treasury is now trying to reduce overpayments by massively increasing the amount of income which can be disregarded but without telling the PAC - or anyone else - how much this will cost the taxpayer."

Child Poverty Action Group chief executive Kate Green said that while tax credits had helped millions of low-income families, problems with the administration meant they had not worked as successfully as they should have done.

She said: "Many families have struggled when money has been clawed back by the Revenue, but a package of reforms announced last year should radically reduce the scope for overpayments and limit the impact of recovery on the poorest families.

"The Revenue must ensure these reforms work successfully so that public confidence in the tax credits system is fully restored.

"CPAG would like to see some further reforms including a statutory right of appeal against overpayment decisions."

The Salvation Army said families needed food parcels after returning overpayments.